Bundling, à la carte pricing and vertical bargaining in a two-sided model

Minghua Chen, Adam D. Rennhoff and Konstantinos Serfes ()

Information Economics and Policy, 2016, vol. 35, issue C, 30-44

Abstract: We develop a two-sided market model with an upstream–downstream structure. More specifically, the platform consists of two rival upstream firms and a downstream monopolist. Each upstream firm negotiates the input price (license fee) with the downstream monopolist and also chooses the amount of advertising that is embedded in the good it sells to the downstream monopolist. The downstream monopolist can offer the two goods either on an à la carte basis or as a bundle. We use this model to understand the incentives to bundle and the welfare properties of bundling in a two-sided market framework. We also contribute to the ongoing debate on à la carte pricing in the TV industry, where the two upstream firms can be viewed as two rival TV networks and the downstream monopolist as a cable operator. We show that an à la carte regulation will raise consumer surplus and downstream profit, while it will decrease the profits of the upstream TV networks.

Keywords: Bundling; Two-sided market; Vertical relations; À la carte regulation (search for similar items in EconPapers)
JEL-codes: L13 L50 L82 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:35:y:2016:i:c:p:30-44

DOI: 10.1016/j.infoecopol.2016.03.001

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